Market Insights

Monthly Market Insights: May 2025

U.S. Markets

Stocks were mixed as buyers emerged late in the month, thanks to solid corporate reports and unexpected trade news. The Standard & Poor’s 500 Index declined 0.76% while the tech-heavy Nasdaq Composite rose 1.26%. The Dow Jones Industrial Average lagged, however, falling 3.17%.

Spotlight on Trade

Stocks began the month with a modest rally as markets tried to anticipate the potential impact of previously announced tariffs. However, soon after the closing bell rang on April 2, investors were caught off guard by a tariff update from the White House. Global markets reacted to the news overnight.

Largest Gain in 17 Years

After the White House announced on April 9 a 90-day pause on specific tariffs, markets pushed higher. The S&P 500 gained 9.5%, its largest one-day increase in 17 years. However, stocks slipped the next morning, despite an upbeat Consumer Price Index report showing that core inflation rose at a mere 2.8% annual rate, the best number in more than four years.

Stocks regained some momentum after several money center banks reported Q1 numbers above expectations. But investors were unsettled again following Federal Chair Powell's concerns that tariffs would likely “move us further away from our goals,” which includes keeping inflation in check.

Late-Month Rally

Stocks rallied late in the month on news that the administration intended to de-escalate tariff tensions with China. Markets also were buoyed by Treasury Secretary Scott Bessent’s statement that the U.S. was close to a trade deal with India. Megacap tech stocks led the market’s advance, with several checking in with upbeat Q1 corporate reports.

Sector Scorecard

Seven sectors of the S&P 500 Index ended the month in the red while the other four sectors posted gains. Energy (-13.86%) was under pressure throughout the month. Healthcare (-3.79%), Materials (-2.43%), and Financials (-2.11%) were also under pressure, while Communication Services (-1.05%), Real Estate (-1.31%), and Consumer Discretionary (-0.10%) were down only slightly.

Technology (+1.69%) led the gainers. Consumer Staples (+0.20%), Utilities (+0.06%), and Industrials (+0.11%) rounded out the winning sectors.

U.S. Market Recap

The Markets

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance doesn't guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

World Markets

The MSCI-EAFE Index rose 4.17% in April, outperforming all three major US market averages for the fourth consecutive month. European markets were mixed. Germany picked up 1.5% and Spain added 1.16%. But the U.K., France, and Italy finished lower.

Pacific Rim markets were also mixed, with Australia (+3.61%) and Korea (+3.04%) among the best performers. China’s Hang Seng index fell 4.33%.

World Market Recap

The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance doesn't guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Indicators

• Gross Domestic Product (GDP). The economy contracted at an annualized 0.3% rate in Q1 2025, falling short of economists’ expectations. It marked the first decline in GDP since 2022.
• Employment. Employers added 228,000 jobs in March, higher than the 140,000 jobs economists were expecting. Unemployment edged up to 4.2%. Annualized wage growth rose 3.8% in March, cooler than February’s 4% rise.

• Retail Sales. Consumer spending rose 1.4% in March, slightly better than expectations of a 1.3% rise. It was the largest monthly increase in retail sales in over 2 years, driven in part by pre-tariff buying of autos and auto parts. Excluding the auto categories, sales were only up 0.5%.
• Industrial Production. Industrial output increased 1.3% in March, following a 1.5% gain in February.
• Housing. In March, housing starts fell 11.4% over the prior month, an about-face from February’s revised increase of 9.8%. It marked the largest drop in a year as high home prices and mortgage rates combined with tepid demand. Single-family starts fell 14.2%. Starts fell the most in the West region (-30.9%), and rose the most in the Midwest (+76.2%).

Sales of existing homes unexpectedly fell 5.9% in March as economic uncertainty unsettled buyers. The median existing home sales price was $403,700, an all-time high for any March.

New home sales rose 7.4% in March. The median new home sales price fell 1.9% from the prior month to $403,600. There were 503,000 unsold new homes on the market, equal to 8.3 months of supply at the current pace of sales.

• Consumer Price Index (CPI). Consumer prices unexpectedly fell 0.1% in March—the first month-over-month decline in almost five years. Year over year, prices rose 2.4%, less than the 2.6% economists expected. Core inflation, which excludes volatile food and energy prices, rose 2.8% year over year—its smallest increase in 4 years—and less than the 3.0% expected.
• Durable Goods Orders. Orders of manufactured goods designed to last three years or longer increased 9.2% in March, higher than expected. Commercial aircraft orders drove much of the gain, with most other areas reporting lackluster orders.

The Fed

While the Federal Reserve did not meet in April, Fed Chair Jerome Powell gave a much-anticipated speech where he explained the labor market is in good shape and not a significant source of inflation. Powell stated that longer-term inflation expectations are "well anchored and consistent with our 2 percent inflation goal," despite higher expectations for inflation over the short term.

He further explained that the Fed’s policy stance is "well positioned to wait for greater clarity. (on the likely effects of trade and fiscal policy, for example) before considering any changes in monetary policy."

At its May 6-7, 2025 meeting, The Fed decided to hold interest rates steady and recognized increased risks of higher unemployment and inflation—partly due to trade policies.   

By the Numbers: American Baking